Addition for investment in land deleted when it was purchased by the company in directors name to facilitate transfer as per State Laws

Addition for investment in land deleted when it was purchased by the company in the name of director to facilitate transfer as per State Laws-High Court Judgment

ABCAUS Case Law Citation:
ABCAUS 2199 (2018) (02) HC

The Challenge/Grievance:
The Revenue was aggrieved by the decision of the ITAT in deleting the addition made by the Assessing Officer (AO) on account of investment from undisclosed sources.

Brief Facts of the Case:
The respondent assessee waa an individual who had filed his return declaring his income from the salary. The case was taken up for scrutiny. The AO had information that the assessee had purchased immovable property and the sale deed was in the name of the assessee. The assessee was called upon to disclose source of income.

The assessee explained that a company was incorporated with three promoter Directors. The assessee had joined the Company later. The said company had already purchased certain land in the name of one of its director who was a farmer.

The Company wanted to convert the agricultural land to a non-agricultural land, as its business was of developing a residential township. As per the laws of the State, the transfer of land in the name of a Company was only possible, if the land was in the name of at least of its two Directors who had farmer status. It was for this reason that some of the land in the name of one of the directors was transferred in the name of the assessee without any consideration.

The AO finalished the assessment under Section 143(3) of the Income Tax Act, 1961 (Act), and made an addition equal to the amount of investment made to purchase land from undisclosed source of income.

The Addition was made of undisclosed income invested in purchasing the land, considering the facts that the sale deed showed payment of full amount of consideration, in the revenue record the assessee was shown as an ultimate owner and there was no proof showing that the assessee was a farmer or having agricultural income.

The CIT (Appeals) allowed the assessee’s appeal. He took into consideration that transfer of land in favour of assessee was to facilitate conversion of agricultural land to non-agricultural land as per the State laws. The land though in the name of the assessee was shown in the balance sheet of the Company. The MOU entered between the Company and its directors was that property will be in name of directors but it will remain property of the company. The stamp duty was paid by the Company for transfer of land. Sale proceeds of the land were received by the Company. On the above basis, the CIT (Appeals) held that no investment had been made by the assessee for purchase of the agricultural land in the said year.

Observations made by the High Court:
The Hon’ble High Court observed that copies of the return for the relevant assessment year (AY) and following AY showed that the agricultural income was declared. As per the State laws, agricultural land can be acquired only by farmers. The transfer was without consideration as per Frokt khat. The stamp duty and registration fee was paid by the Company. The land in the name of the assessee and one of the directors was shown in the audited balance sheet of the Company. The said director filed an affidavit to the effect that transfer of land was without consideration and for administrative reasons. MOU was entered between the Company and its Directors that the land bought in the name of the Directors shall be the sole property of the Company. The sale deed vide which the land under consideration was sold showed that the consideration is to be paid to the Company. Even the AO in its remand report admitted that the sale proceeds were received by the Company. The bank statement of the Company fortified the said fact.

The Hon’ble High Court observed that the addition was deleted on analysing the evidence and fact and the question raised by the Revenue was a question of fact and not a question of law. The issue was decided on appreciation of evidence. The conclusion arrived at was a logical conclusion.

This Court under jurisdiction of Section 260-A of the Act cannot re-appreciate the evidence, especially when no perversity is established.

Decision/ Conclusion/Held:
Appeal was dismissed.